Why Countries Trade

Chapter Outline

I. Introduction
II. International Trade Versus Interregional Trade
 international trade occurs for the same reasons as interregional trade
 gains from technology and gains from trade
III. Trade in an Individual Product
 trade in cloth (U.S./India) — Figure 2.1
 supply and demand
 the effects on India and the U.S.
IV. Trade Based on Absolute Advantage A. Absolute Advantage
 PASSPORT: Football Games, Rats, and Economic Theory
 PASSPORT: Mercantilism
 Table 2.1
B. The Gains from Specialization and Trade with Absolute Advantage
 gains from trade — Table 2.2
 the labor theory of value
V. Trade Based on Comparative Advantage
A. Comparative Advantage
 Table 2.3
 David Ricardo
 Babe Ruth
B. The Gains from Specialization and Trade with Comparative Advantage
 PASSPORT: Principal Exports of Selected Countries — Table 2.4
 Change in world output — Table 2.5
VI. Trade Based on Opportunity Costs
A. Opportunity Costs
 PASSPORT: Labor Costs as a Source of Comparative Advantage — Table 2.6
B. The Gains from Specialization and Trade with Opportunity Costs
 Table 2.7
 Autarky
VII. The Production Possibilities Frontier and Constant Costs
A. The Production Possibilities Frontier — Table 2.8
B. Production and Consumption Without Specialization and Trade — Figure 2.2
C. Production and Consumption with Specialization and Trade — Figure 2.3
VIII. The Terms of Trade A. Changes in the Gains from Specialization and Trade  Table 2.9  Figure 2.4
B. Demand Conditions and the Terms of Trade C. Distribution of the Gains from Trade
 PASSPORT: The Commodity Terms of Trade
 Table 2.10
IX. Trade Under Increasing Opportunity Costs
A. Increasing Costs and the Production Possibilities Frontier — Figure 2.6
B. Production and Consumption without Specialization and Trade — Figure 2.7
C. Production and Consumption with Specialization and Trade — Figure 2.8
X. Dynamic Gains from Trade 